What Really Matters: The Truth About For-Profit Vs. Non-Profit Universities

What is the truth about for-profit versus non-profit universities? I was at a conference a couple weeks ago, and an acquaintance made a comment about a presentation that he had attended. “It is good, but the speaker was from a for-profit University, so…you know.” This statement represents the suspicions about for-profit higher education institutions by some people, especially those working in non-profit higher education. Depending upon the audience, you will hear conversations about the difference between for-profit and non-profit higher schools with a wildly diverse and sometimes completely inaccurate representation of the two. Following are five examples, each of which happen to be a myth. Yet, before I start, know that this is coming from a person at a non-profit organization, but I’ve studied and learned about dozens of schools: public, private, non-profit, faith-based, and more.

1) Non-profit institutions are not about the money, but for-profits are all about the money.

For-profit or non-profit, University leaders today care about the money. Without it, their doors don’t stay open. As such, the majority of higher education institutions, for-profit and non-profit, have plenty of conversations about financials. Take continuing education units in some of the top and most élite Universities or flagship state schools around the country as an example. Interview the leaders of those units and you will find many (maybe even most) of them explain that they are expected to have a substantial profit margin for their unit…often upward of 40-50%. That revenue frequently goes to support other initiatives in the University. The same is true for many units in smaller and medium sized schools, especially those serving graduate and non-traditional student populations. They are expected to be “profitable.” This is not just among the for-profit schools. This is across many types of institutions today.

Yes, there are examples of unethical schools and diploma mills that are all about that money, but that is not a fair or accurate representation of for-profit higher education today. In reality, the amount of money spent directly on instructional costs at Universities ranges from 20-35%, with 35% being rare and definitely on the high side.

2) Your Tuition Goes to a More Noble Cause at a Non-Profit School

This may or may not be true. It all depends upon what you consider a noble cause. Allow me to let you in on a little secret. A ton of the tuition dollars (and tax dollars in the case of public schools) that are used to run various Universities go to for-profit organizations. These schools pay for electricity, telecommunications, tons of technology infrastructure and services, outside marketing firms, and a dozen other services from for-profit companies. In fact, as more non-profit schools have sought to get involved in online learning, they are using a sometimes surprisingly large amount of tuition dollars to pay for outside vendors and partners, with some schools hiring outside groups and paying them anywhere from 10% to over 70% of the tuition for outsourced services ranging from student advising to admissions, marketing to course design…and more. Traditional non-profits also pay for many services from for-profit companies. Business to business interactions with Universities is a multi-billion dollar industry. Consider food services, bookstores, textbook companies, software vendors, learning management system providers, and the back-end technology services that charge a surprisingly large amount for every student enrolled in the school. So, even if you went to a non-profit school, a fair share of your tuition may still have gone to for-profit companies. That is the modern world of higher education.

3) For-Profit Schools Are Lower Quality Than Non-Profit Schools

It is true that there are some for-profit institutions of the past and present who have probably placed revenue above the needs of the students or providing the highest quality educational experience. Yet, you can find plenty of for-profit and non-profit school examples of missing the mark when it comes to academic quality. At the same time, when I’ve interacted with different for-profit school leaders, I often hear visions of high-quality, high student satisfaction, student retention, and students getting a positive return on their educational investments. In other words, many of them care deeply about the quality of their programming. Even from a business perspective, if you don’t have a quality product or service, it will eventually hurt your bottom line as well. This leads me to a fourth myth.

4) There are Unequal Standards for For-Profit and Non-Profit Schools

There are regionally accredited, nationally accredited, and non-accredited Universities today. We typically assign the highest respect for the regionally accredited schools, with many arguing that regional accreditors have the highest standards. National accreditation bodies do not maintain the same clout, and one’s credits may not always transfer as well from such schools. Then there are some schools that refuse or opt not to pursue any type of accreditation. Yet, everything that I just wrote about accreditation applies equally to non-profit and for-profit institutions. If you go to a for-profit that is regionally accredited, they had to meet the same standards as a comparable non-profit. At the same time, there has been an extra measure of scrutiny for for-profit institutions lately, potentially requiring them to be even more above reproach when it comes to meeting the standards.

5) The Tax Status of a University is Among the Leading Distinguishing Marks

There are far more distinguishing marks than the tax status of a school. For distinguishing factors, look at the school’s mission, vision, values and goals. Talk to people (students, faculty, administration, others) in the schools to see how/if their mission is lived out. I often tell people that you can best get to know an organization by trying to understand the compelling “why” behind the people who work there. That will tell you so much more than the tax status. As such, I am far more interested in the compelling “why” behind a school than I am in their formal tax status.

One Reply to “What Really Matters: The Truth About For-Profit Vs. Non-Profit Universities”

  1. DrEvel1

    Let me comment briefly from the perspective of one who worked at what started out as a nonprofit online University that was then sold off to a group of venture capitalists who made it into a for-profit venture. In a sense, we were victims of our own success. We were bringing in so much revenue that we became a visible target, and when our parent institution decided they needed some money, we were a convenient asset to be sold off. So much for the ethics of a nonprofit religious school!

    We had been founded and run with a very stern hand by a couple of highly qualified and respected academic administrators. Although they tended to be somewhat parsimonious, they did at least highly value the educational process and allow numerous academic innovations to be experimented with. Upon our sale, however, we found ourselves subject to new management brought in by the new owners. The owners had decided that our problem was inadequate marketing, and that if we just marketed better, we could grow exponentially. So the new managers they installed were essentially marketing types, with little to no experience in educational institutions.

    I won’t go into details on how badly they screwed up the new marketing effort. Let me just say that the fundamentally misjudged two things: (a) the nature of the product, and (b) the nature of the customer. When you get those two things wrong, it’s hard to market successfully. They thought that they were selling individual courses to individual students. In reality, they ought to have been selling a curriculum, a coordinated series of courses aimed at developing a skill area. They also failed to take advantage of the high degree of networking evident among our primary student groups. Both of these errors can be traced to a failure of the new management to respect and/or understand academic institutions in general and our faculty in particular. In the long run, they systematically devalued the faculty, and paid a heavy price for doing so.

    I completely agree that good educational management can be found in any kind of institution regardless of tax status. And one can find administrators who don’t understand education in both kinds of institutions as well. But when you do introduce the element of a profit-seeking stakeholder, particularly in the context of what was essentially a leveraged buyout that saddled the University with the cost of its own sale, particularly in today’s business climate emphasizing short-term returns, there are potential dangers associated with misassessment of organizational problems and capacities. This is particularly problematical when the educational expertise of the faculty is generally disrespected.

    Clearly, this was an extreme example of a for-profit educational institution, and one characterized by some very peculiar circumstances. I’ve also done adjunct teaching at a couple of other for-profit universities, as well as having had a long career in traditional universities. Nowhere else has had this peculiar combination of circumstances. But it is striking enough as an example that it deserves some attention in any discussion of the relative merits of different kinds of institutions.

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